Page 26 - ISQ Outlook 2023

INVESTMENT STRATEGY QUARTERLY

Will The Outlook For Emerging Markets

Brighten In 2023?

Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services Ltd*

The outlook for emerging markets is likely to improve in performance and more to one-off factors associated with the
2023 and 2024, but a return to the “golden age” of pros- adoption of market-friendly economic liberalisation, lowered
trade barriers and economic reforms aimed at stabilising fiscal
perity that characterised the period from 2000 to 2016 is positions and bringing periodic bouts of aggressive inflationary
less assured. pressure under control. Technology’s spread and adoption
facilitated rapid integration both with other emerging econo-
Typically, the definition of what constitutes an emerging mies and the developed world more generally. The result was a
market (or economy) coalesces around the assumption that it surge in productivity that produced the one-off out-
is steadily transitioning into a developed economy or market peformance at the start of the century.
whilst benefiting from rapid growth in economic output, rising
per capita income, increasingly liquid and investable financial But the boost to productivity faded as the previous step gains
markets underpinned by sufficient liquidity to limit overly dissipated; economies can only open up once! Simultaneously,
sharp fluctuations in both currencies and financial asset prices. new headwinds began to build up. Working-age populations in
Emerging economies differ from their typically smaller and less most emerging markets were rising, but the growth rate was
established frontier equivalents, where investment returns can slowing, ultimately weighing on productivity. More fundamen-
be greater but with markedly higher levels of inherent risk and tally, productivity growth began to ebb as structural issues
illiquidity. building in the 2000s began to bite. In the case of China, the
problem became one of over-investment and a steady increase
Driven in no small measure by the popularisation of the term in excess capacity, while Brazil and Russia suffered from the
BRICS (Brazil, Russia, India, China and South Africa), the opposite problem, crumbling infrastructure and chronic
emerging universe enjoyed something of a golden age during underinvestment.
the first decade of the new century. Emerging economies
accounted for around two-thirds of total global growth The COVID pandemic has served to add to the challenges faced
between 2000 and 2015, according to the World Bank, by emerging markets. Whereas most developed economies
prompting many to envisage an “EM century” in which the have broadly returned to pre-virus levels of activity, the
rapid growth trajectory persisted and per capita incomes recovery across many emerging markets has taken longer.
converged steadily with those of the developed world. Vaccine rollout has been slower, and populations are still
vulnerable to possible future outbreaks. Fiscal positions have
What has transpired in the period post-2015 is the realisation weakened, forcing the imposition of austerity measures which,
that the fast-paced growth of the 2000s was an exception, not when exacerbated by inflationary pressures and sharply higher
the norm, owing less to a lasting acceleration in economic interest rates, has depressed household incomes and crimped
business investment.
*An affiliate of Raymond James & Associates, Inc., and Raymond James Financial Services, Inc.

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